CNA Financial Corp (NYSE:CNA) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Improving Margins

Jay Cohen – Bank of America Merrill Lynch: The first question, maybe I am misinterpreting. I am sensing maybe an increased sense of urgency for lack of a better word on your behalf to improve margins. In the standard business, you saw the growth slip quite a bit, seem to be more focused on your better businesses. Am I misreading that?

Thomas F. Motamed – Chairman and CEO: I think, we’ve been focused on improving margins for a long time, but it’s a complicated process. Particularly when you change your underwriting strategy, you’re changing your mix. There are a lot of things that have been in play over the last, whatever it is, three, four years. I don’t think it’s a greater sense of urgency, Jay. I think it’s always been there, but it’s pretty hard to turn numbers around in this business overnight, and we think we’ve put a lot of things in place that are starting to reap those kind of benefits on markets and clearly if you look at strong written rate in Commercial and Specialty, we are improving margins. So, we’re pretty pleased with that and we expect that that’s going to continue.

Jay Cohen – Bank of America Merrill Lynch: You did notice that the renewal retention on the standard business did slip. I think it’s a reasonable trade-off. I’m wondering, if you can qualitatively describe the market conditions and what you’re seeing? Are you seeing any increase in competition among your competitors?

Thomas F. Motamed – Chairman and CEO: Let me try to first comment on the – as you described the premium decline in Commercial, we exited Personal Watercraft Program that I mentioned in my remarks. We actually transferred earned premium reserve to another underwriter. That was 5 points of the negative growth, if you will, and the transportation that I also cited in my remarks was 2 points and we have been over time reducing our exposure to what we would call international work comp, that’s about 3 points. So if you add that up, that’s about 10 points that is based on underwriting decisions that we have taken of, I’ll say, fairly recent vintage. But if you take those out, the reality is we were really – I guess we were up 3 points in commercial. So we’re taking strong underwriting action, and that’s what’s reflected on the commercial side. Plus, if you look at new business to loss, we’re getting a little pickier relative to pricing on new accounts. So we’re just getting, I’d say, a lot tougher as we continue to execute and drive margin improvement. As far as competition, it never goes away and we see plenty of competition both in Commercial and Specialty. I don’t think we’ve seen anything unusual in the second quarter on competition. I think it’s been pretty consistent. If there is one thing that I would think has kind of shown is that some of the underwriters who may have been sticking to their guns have kind of let up a little bit to not lose the business. So people are more picky on new and trying to protect their renewals where they have knowledge as to the account profitability and performance.

Paid Losses

Amit Kumar – Macquarie Capital: Just a few questions here. First of all, maybe a numbers question. Do you have the paid loss number handy?

Thomas F. Motamed – Chairman and CEO: In Commercial it was 116% driven by Sandy; Sandy had $40 million paid in the quarter, as well as some large casualty work comp reserves. Specialty was 91%.

Amit Kumar – Macquarie Capital: Was there anything unusual in that or no?

Thomas F. Motamed – Chairman and CEO: We just had higher than expected reserve releases.

Amit Kumar – Macquarie Capital: The other question and this sort of goes back to the prior question. As you look forward, I guess, in both Specialty and Commercial and you think about margin improvement, how do you think about margin improvement as it relates to improvement in the loss ratio versus improvement in expense ratio going forward?

Thomas F. Motamed – Chairman and CEO: First of all, risk selection has a lot to do with it. So we are focused on the customer segments which, quite honestly, outperform the rest of the portfolio. So the more we drive into the customer segments, the better I’d say risk selection and pricing. At the same time, we continue to push for rates. They did not fall off in Commercial in the second quarter. They were, I think we’ve used the term, consistent, but it’s kind of interesting, rates did go up in the second quarter in ocean, marine, automobile, workers’ comp, our small package business, fidelity and medical malpractice. So there are some lines that rates are continuing to move up. The other thing that we kind of look at is the range of rate increases, and in Commercial at the low-end we have 8%, at the high-end of 14%. So there’s nothing that’s getting 1% rate increases. We’re getting pretty good, whether you call, high-single-digit or low-double-digit, and in Specialty it’s kind of running between six and 11, depending on the line. So we think that’s all pretty good and we also are pretty vigilant on rate decreases. We only had 9% of our accounts in Commercial that actually got a rate decrease. Specialty was a little higher than that, about 15. So, you try to minimize your rate decreases, you try to push rates up in every line of business in every segment and we continue to keep pushing. As we (traded), we’ve got rate and we’ve given up some retention, but we think that’s the right trade-off going forward.

Amit Kumar – Macquarie Capital: What about the expense initiatives going forward? Do you think you’ve squeezed out whatever you could, or could there be more improvement on sort of expense side?

Thomas F. Motamed – Chairman and CEO: We are expecting more improvement over time.

D. Craig Mense – EVP and CFO: I think, Amit, that as we looked at our expense competitiveness, we were about 2 or 3 points higher than or better peers who operate similarly. In expense ratio we’ve reduced, so we’ve reduced that gap by about 100 basis points this year. I think you should expect us to probably sustain that current level. This year we have a number of plans in place where we would expect to have that difference again in ‘14.

Amit Kumar – Macquarie Capital: I guess the only other question and I will re-queue after this. The adverse development in Hardy on the New Zealand and the flooding, just remind me what’s sort of the delta between now and I guess the upward sort of range of the limit. I guess what I’m trying to ask is what is the probability that this could develop further and why did it develop this quarter?

Thomas F. Motamed – Chairman and CEO: Let me start with the second part of your question, why. It was a surprise. It came out of actually the non-marine property, so it’s not the property reinsurance treaty part. That’s fully developed. I wouldn’t expect anything further beyond this quarter. It’s related really to two individual losses that were surprises in terms of the extent of the eventual outcome of the loss.

Amit Kumar – Macquarie Capital: Beyond that you were satisfied with the quality of the book?

Thomas F. Motamed – Chairman and CEO: Yes.

Amit Kumar – Macquarie Capital: How should we think about retentions on that book going forward?

Thomas F. Motamed – Chairman and CEO: Well, it’s, you can see there, running in the mid-60s now. I think clearly the competitive environment in that book is different particularly on the international side. So think about how we’re very much focused on the property business, non-marine property and marine, aviation, energy. So there is some pricing pressure on international property and on aviation, which you read about. So I think you should expect that retentions to stay kind of where they are this quarter.